Surging oil prices reinforce rate hike expectations, putting pressure on gold prices

1. Gold prices fell on Monday, with spot gold dropping as much as 0.63% to around $4,322 per ounce, as surging oil prices fueled market concerns about inflation and raised expectations for a Federal Reserve rate hike at this week's policy meeting. Spot gold recorded its third consecutive weekly decline last week. 2. Tim Waterer, Chief Market Analyst at KCM Trade, stated that the current market environment is unfavorable for gold prices—rising energy prices, coupled with increased expectations of interest rate hikes ahead of Federal Reserve and Bank of Japan meetings, pose a clear headwind for yields. However, he also noted that amid ongoing geopolitical and interest rate policy uncertainties, a drop in gold prices should attract buying interest as a hedge against uncertainty. 3. According to CME Group's FedWatch tool, traders now estimate there is about an 87% probability that the Federal Reserve will raise rates at its policy meeting on Tuesday and Wednesday, up from about 67% before last week's inflation data was released. The Bank of Japan is also expected to hike rates on Friday, as rising energy prices and unresolved Middle East tensions, along with persistent inflation and robust economic growth, increase the likelihood of major central banks tightening policy further. Although gold is usually regarded as a hedge against inflation, rising interest rates often reduce the appeal of non-yielding gold.